Spinning Backwards

Net metering basic

India is currently witnessing a transition in its solar market. The initial emphasis was on large-scale grid-connected projects, driven by the Gujarat State Solar Policy (2009), the Jawaharlal Nehru National Solar Mission (2010) and policies of states such as Karnataka, Rajasthan, Andhra Pradesh and Tamil Nadu. Subsequently, the focus shifted to distributed solar power generation, and various states announced net metering policies.

The central government has set an ambitious target for solar power capacity addition – 100 GW by 2022. Of this, 40 GW is expected to come from off-grid sources, which means an increase in the installation of rooftop solar projects for residential, commercial and other purposes. To meet this target, a number of aspects need to be taken into consideration, such as the pricing mechanism, open access and workforce requirement.

At present, renewable energy accounts for 6 per cent of the energy mix in the country. Since renewable energy is concentrated in a few states, the successful achievement of the solar target would depend on a conducive policy environment and regulatory framework in these states. Also, the cost economics of solar projects need to be given due consideration as peak hour pricing may not work in the case of solar, since the peak demand hours are either around 7 p.m. or between 8 a.m. and 9 a.m. when solar power is unavailable.

In simple terms, net metering means “the meter spins backwards”. The consumer gets paid the marginal tariff, which varies according to consumer category and the size of the rooftop project. If there is no battery, all the power must be used immediately. If the project is grid connected, the grid must be able to accept power from the project. If it is not grid connected, there should be enough load in the house (especially in the middle of the day) to absorb the power generated.

All consumers who pay for solar rooftop systems would want backup power through battery-powered inverters. But most grid-tied inverters cannot cater to the entire load requirements of a home during power outages. Also, the batteries increase costs by 70–90 per cent and the efficiency losses of inverters are quite high. Further, grid integration of solar energy requires the strengthening of the existing transmission and distribution networks. Also, evacuation of power from remote locations is an issue.

India lacks an appropriate proper wholesale market for electricity with time-of-day (ToD) tariffs. Power purchase agreements do not have an in-built ToD procurement co Further, the lack of open access and high cross-subsidisation are making matters worse. mponent.

There is no incentive for fast ramping up or storage. Also, mark-to-market pricing is absent, which means that renewable energy generators do not lower their prices.

History of net metering

One of the first net metering legislations globally was the Public Utility Regulatory Policy Act (PURPA), 1978 in the US. It made utilities buy back power at their avoided cost. Net metering policies in the US vary from state to state in terms of pricing, size, requirements, etc.

Similarly, there is no single policy on net metering in India. Different states and even utilities have offered different mechanisms for availing of capital subsidies and operating support in the form of generation-based incentives (GBIs) or feed-in tariffs (FiT). Also, solar purchase obligations (SPOs) differ from state to state. For instance, Haryana and Chandigarh have introduced mandatory rooftop solar photovoltaic (PV) installations, while Bengaluru has made solar thermal mandatory, in a bid to reduce the morning load on the utility. Tamil Nadu’s Policy for Domestic Rooftop Solar, introduced in 2012, encourages all domestic consumers to install solar PV systems. GBIs were offered at Rs 2 per unit for the first two years, Re 1 per unit for the next two years and Re 0.50 per unit for the next two years. A capacity addition of 50 MW was anticipated under the policy. All solar or solar-wind hybrid rooftop systems installed before March 31, 2014 were eligible for GBIs. Also, there was a provision for installing separate meters for rooftop generation to avail of GBIs, besides other solar schemes to promote solar energy. In 2016, a proposal has been made to update the policy to make all new meters for certain consumer segments net metering-capable.

Although several developments are under way on the distributed generation front, much remains to be done in terms of rooftop solar capacity addition, which is currently not on track to reach the 40 GW target, as per the Rooftop Solar Policy Coalition’s Report (2015-16). The complexity of the net metering mechanism and design of incentives are the main challenges.

Cost estimates

The generation cost for a rooftop solar system is typically about Rs 9.90 per kWh after amortisation, without a battery, depending on a number of factors. Some assumptions used for this calculation are – capex at Rs 100,000 per kW, a discount rate of 15 per cent, an average life of 15 years, maintenance costs at Re 0.50 per kW, and no land costs. Meanwhile, the tariff for MW-scale grid-connected solar PV plants works out to around Rs 4.30 per kWh. This implies that GBIs may be required above and beyond net metering.

Challenges

In order to promote the adoption of rooftop solar, bidirectional meters are needed. There are also certain techno-economic challenges impeding the installation of rooftop solar projects. First, the investments in these projects are relatively high. Since grid-scale power itself is expensive, further investment in rooftop solar by consumers is uncertain. Second, the tariff slabs for buy-back of power by utilities are different for each consumer category, thereby reducing the incentive for setting up such projects. Third, the grid is not robust enough to absorb a large amount of rooftop solar. As a result, most grid-connected systems disconnect in the event of grid failure.

Besides the adoption of net metering facilities, inverter technology improvements are also necessary. In addition, changes in policies should be made to include guidelines for availing of renewable energy certificates, meeting SPOs, etc.

Peak power is always more expensive (Rs 7-Rs 8 per kWh) than off-peak power, which discourages utilities from buying it back from consumers. Also, rooftop plants operate for only 500-1,000 hours per year. In the West, this issue is dealt with by blending peak power with off-peak power. This increases the cost of each unit of electricity.

Alternatively, a peaking tariff rate may be formulated, wherein those who contribute to peak power load are made to pay for it. But this requires appropriate metering.

Recommendations and outlook

The economics of rooftop solar are still not workable and hence consumers need to be incentivised to increase its adoption. This can be done through higher tariff slab rates or GBIs. For instance, offering the highest tariff slab may help retain consumer interest. A recommendation by the India Smart Grid Forum is to start with an FiT mechanism and transition to net metering when solar energy costs reach grid parity.

Also, grid infrastructure needs to be strengthened in order to absorb the energy injected by consumers. Further, non-financial instruments need to be developed for supporting consumers.

Future policy discussions on rooftop solar should also include storage technologies and electric vehicles. The good news is that technology is improving, especially for batteries, panels and inverters. This would enable rooftop solar to become a useful tool in the portfolio of solutions for energy security and sustainability. Going forward, ToD tariffs will also become critical and hence, future policies should include the related provisions. Also, in order to truly scale up rooftop solar, subsidy support should not be provided, as that it will be a burden on the utilities and perhaps, the exchequer.